Does Obamacare Save or Cost Money?

The WasteWatcher

January 26, 2011 — CAGW Staff

The strange world of congressional budget scoring obscures whether Obamacare saves or costs money, but it also provides insight into why the federal government is in such a financial mess. Revenue and cost figures are thrown about in an attempt to justify each side’s position. Understanding the relevant facts provides a clearer picture of reality.

The Congressional Budget Office (CBO) is designated under congressional rules as the official scorekeeper and is generally considered to be a fair referee. However, the CBO is hamstrung by complex rules that prevent it from providing any explanations of reality beyond the information furnished to the agency.

This creates a problem in determining if repealing the Obamacare legislation will either increase or decrease the deficit in the long run. Supporters of H.R. 2, the Repealing the Job-Killing Health Care Law Act, claim the new health care law will bust the budget in the long run and cost hundreds of billions of dollars more than advertised, leading to much higher taxes or reductions in promised benefits (healthcare rationing).

Detractors claim that repealing the law will increase federal deficits and point to scoring from the CBO as their evidence. In a letter to House Speaker John Boehner (R-Ohio), CBO estimates that repeal of Obamacare would increase the federal deficit by $145 billion over the next 10 years.

However, this figure is limited to the money included for mandatory spending programs and revenues only and does not include estimates for discretionary spending. CBO is prohibited from including the costs of the many programs that will require additional funding for grants and administration of Obamacare. Yet, the CBO admitted that these costs “probably exceed $115 billion over the 2010-2019 period” and do not include any of the costs associated with an additional 52 programs and grants that were only authorized for “such sums as necessary” and will cost tens of billions of dollars more over the next decade.

These costs are assumed to be paid for out of unidentified appropriations in other programs. The reality is that Congress simply increases spending everywhere and adds this to the deficit. While the CBO cannot score the repeal of discretionary spending as savings, in fact tens of billions of dollars will not be spent if the repeal of Obamacare is eventually signed into law.

Further, Obamacare increases payroll taxes by $53 billion. However, none of that money is used to shore up Social Security benefits. Instead, this money is diverted to pay for new Obamacare subsidies. Even worse, the administration is counting this money twice. Once, to claim it is increasing the Social Security Trust Fund; and second, to claim the new funds will offset the new spending in Obamacare. Obviously, if the money is spent on Obamacare, it cannot simultaneously be available to pay Social Security benefits in the future.

This same accounting gimmick is used with almost $400 billion in Medicare cuts that offset higher Obamacare spending. Medicare is going broke and any savings need to be used to shore up the program. Instead, this money is being diverted for new Obamacare subsidy programs, leaving Medicare in worse shape than before.

Finally, Obamacare creates a new entitlement program for long-term care called the CLASS Act. This is particularly deceptive. The Obamacare law collects $70 billion in premiums for future long-term care needs but spends all of the money immediately on other programs, leaving nothing but IOU’s in the account needed to pay future benefits.

Thus, when the government-imposed blinders are removed and all of the real costs that CBO is prohibited by law from including in the savings of repealing the Obamacare law are tallied, the picture changes materially; rather than costing $145 billion over the next 10 years, repeal saves almost $500 billion.

Even after those correctives, there is still the ongoing problem of the “Doc Fix,” which poses a thorny dilemma which must be addressed immediately. Congress has been living in a fantasy world for a least a decade, assuming that doctor reimbursement rates for Medicare will be slashed by more than 20 percent in future years in order to make the program appear more solvent on paper. Each year, Congress backs away from those cuts, kicking the can down the road to the next Congress. Yet, no serious healthcare reform effort can brush past this reality. Unfortunately, Obamacare needed to find money to fund its many new programs and built in the fictional savings from the “Doc Fix” into their calculations. Worse, Congress used real Medicare savings to spend on new programs rather than fix this existing problem. The “Doc Fix” will cost more than $200 billion over the next 10 years.

The real costs of Obamacare are more than $700 billion (over how many years?) including all of the obligations on future taxpayers. All of these costs should be considered when determining if H.R. 2 saves or costs money.

-- Roger Morse, Visiting Fellow

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.